Insider Monkey

13 Penny Stocks that Captured the Attention of Billionaires

Fahad Saleem
9 min read

In This Article:

In this article, we will take a detailed look at the 13 Penny Stocks that Captured the Attention of Billionaires. For a quick overview of such stocks, read our article 5 Penny Stocks that Captured the Attention of Billionaires.

Investors are jubilant after the Fed’s clear signal that it would begin cutting interest rates in 2024. Markets have remained under pressure due to uncertainty caused by higher interest rates. While many believe we are still not out of the woods, the Fed’s acknowledgement that its efforts against inflation are working and its readiness to take a dovish stance is enough to soothe investors’ nerves in the short term.

But will stocks keep rebounding in 2024? Will socks rise after the Fed actually starts to cut interest rates? An interesting report from LPL Research takes a look at the behavior of equities during interest rate cuts. The report said that while assessing or predicting stock movements driven by interest rate cuts, it’s extremely important to pay attention to where we actually are in the business cycle. For example, the report said that when the Fed began to cut rates after series of hikes in January 2001 and September 2007, the economy entered recessions. However, rate cuts of 1984, 1987, 1989, 1995, and 1998 saw the S&P 500 significantly rise over the next six to 12 months.

A report by Meeder Investment Management takes an interesting look at the effect of rate cuts on stocks and whether it makes sense to be overly bullish on stocks on expectations of rate cuts next year.

"One common perception among investors is that the stock market will perform well once the Fed starts cutting interest rates. History tells us this is not necessarily always the case. In fact, over the past nine initial interest rate cuts, more than half of the Fed’s first cuts were followed by declines in the S&P 500 Index ranging from -22.6% to -55.5%. The Technology bubble in the early 2000s and the Great Financial Crisis proved to be the worst scenarios, with the Fed cutting interest rates at two different times during the secular bear market of 2000–2009. On the other hand, four of the nine occurrences were followed by minimal weakness and achieved strong 6-month returns. On balance, over the past nine initial interest rate cuts, the S&P 500 Index had an average decline of -20.5% and an average 6-month return of 3.4%. So while the market has experienced both bull markets and bear markets following the first rate cut, history does not indicate that the Fed’s accommodative policy will simply carry the market higher. Valuations matter too. When the market had a decline of at least -20% after the Fed’s first cut, the average S&P 500 trailing PE ratio was 18. On the other hand, when the S&P 500 had a decline of less than -10%, the average PE ratio was 11.4. The current P/E ratio of 22 could be another reason to be more cautious once the Fed makes its first cut."

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